With recent news headlines like "Dow Jones Drops Over 467 Points in Major Selloff", "Moody's Investors Service cut credit ratings at the Bank of America and Wells Fargo & Co" and "Federal Reserve Chairman launches new stimulus" it is easy to see that the economy is in economic crisis and something needs to happen sooner than later.

President Obama outlined his solutions to this crisis in his proposed "Economic Growth and Deficit Reduction" plan on September 8, 2011. The President's plan referred to as the "American Jobs Act" is intended to jump start the economy and give companies the confidence to invest in the future. The plan focuses on creating more jobs by providing tax credits to employers hiring new employees and reducing payroll taxes for every working American and every small business.

Although the cost is projected to be $447 billion, the President has detailed his plans for paying for this bill over the next 10 years. This plan includes cuts and reforms to mandatory programs such as Medicare & Medicaid, savings from withdrawing our troops from Afghanistan and Iraq, closing tax loopholes such as cutting tax preferences for high-income households (the Buffett Rule), eliminating tax breaks for oil and gas companies, closing the carried interest loophole for investment fund managers, and eliminating benefits for those who use corporate jets. The president projects that the payment plan "is a blueprint for how we can reduce this deficit, pay down our debt, and pay for the American Jobs Act in the process."

So specifically what are the tax proposals within the American Jobs Act?

• Payroll tax cuts for businesses: The President's plan will cut in half (to 3.1%) the taxes paid by businesses on their first $5 million in payroll, targeting the benefit to the 98 percent of firms that have payroll below this threshold.
• Payroll tax cut for individuals: extend and expand the (2011) payroll tax reduction by cutting workers payroll taxes in half through 2012.
• Payroll tax holiday: eliminate the 6.2% payroll tax businesses pay attributable to any growth in their payroll due to adding new workers or increasing wages. The benefit is capped at the first $50 million in payroll increases over the prior year.
• Tax credits: one is a $4,000 tax credit for employers that hire individuals that have been unemployed for over six months. The other is a $5,600 to $9,600 credit to hire unemployed veterans including those with service connected disabilities.
• Extending the 100% bonus expensing: this is an extension of the 2011 100% bonus expensing on new equipment purchases through 2012.

Along with these proposals to create jobs the Act also contains many proposals including extension of unemployment benefits, rebuilding and modernization of infrastructure and buildings along with cost cutting and deficit reducing plans.

As with any "proposed" legislation the final approved version may be substantially different from the original. We will keep a watchful eye on the evolving legislation and keep you informed as things change and become law.

As always please contact your Dermody, Burke & Brown tax advisor if you have any questions regarding your individual or business tax situation.

The information reflected in this article was current at the time of publication. This information will not be modified or updated for any subsequent tax law changes, if any.